25 January 2015

GREECE GOES OVER THE PRECIPICE

The Greek election results represent a country throwing a national tantrum. In handing power over to the radical left Syirza party, which cannot possibly deliver on anything it has promised, they are sending a message to the European Union and IMF, which have insisted on an austerity program to mitigate the results of continuous government mismanagement and excessive debt. Unfortunately this has thus far resulted in a sharp drop in living standards, 25% unemployment, and extreme hardship over the past several years. But ironically the worst is over and the country finally was heading towards an economic recovery, at least prior to this election.

The EU, and Germany especially, as the strongest economy in the region, required structural reforms to continue lending, including privatizing government assets, cutting pensions, salaries, and personnel, pressuring the Greeks to rationalize their dysfunctional state and its bloated public sector. This has caused great pain, and while actually producing results, at this point the people have had enough. The vote for Syriza is less an ideological shift than an emotional reaction and an expression of frustration. It is also completely irrational. This party is led by an ex-communist named Alex Tsirpas, who apparently left that party because it was not radical enough, and who is totally clueless as to how a government functions.

This party has pledged to undo the austerity regimen and cancel a large part of their debt, while also double the minimum wage, increasing pensions, stopping privatization, while at the same time staying in the eurozone. This is simply impossible. If they move forward with this platform it will likely mean an exit from the euro and economic chaos within the country. The effect on Europe may be significant if it spreads to other European countries, such as Spain and Italy that have similar problems, and may roil markets around the world. However, unless markets panic the effect will not be all that significant insofar as Greece represents only 5% of the European economy.

More troubling is the likelihood that Greece is but a harbinger for many other countries in Europe, given their low birth rate and slow economic growth, which will be unable to sustain the generous benefits that have been promised, or possibly even service the debts they have assumed. There are comparable radical parties elsewhere with similar appeals, that are gaining traction, but promising the sky cannot provide any solution and will likely make things worse, because radicals are incapable of governing. There will be capital flight, higher taxes, no access to financial markets, and a bleak future for those who follow this path.

That radicals can so easily take control of a country and steer it towards disaster proves the wisdom of checks and balances in government, as well as the separation of powers. While Greeks can be proud of a great many achievements, including democracy, functioning self-government is not one of them. From the most ancient times right up to the present, political stability and effective government have been vanishingly rare. As one who has many ancestors from that country, it is at the moment an embarrassment.